Q2 2019 Earnings Call - July 31, 2019 - Rogers Corporation
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Q2 2019 Earnings Call
July 31, 2019
1
Forward-looking statements
Safe Harbor Statement
This presentation contains forward-looking statements, which concern our plans, objectives, outlook, goals, strategies, future events, future net sales or performance, capital expenditures, future
restructuring, plans or intentions relating to expansions, business trends and other information that is not historical information. All forward-looking statements are based upon information available to
us on the date of this release and are subject to risks, uncertainties and other factors, many of which are outside of our control, which could cause actual results to differ materially from the results
discussed in the forward-looking statements. Risks and uncertainties that could cause such results to differ include: failure to capitalize on, volatility within, or other adverse changes with respect to the
Company's growth drivers, including advanced mobility and advanced connectivity, such as delays in adoption or implementation of new technologies; uncertain business, economic and political
conditions in the United States and abroad, particularly in China, South Korea, Germany, Hungary and Belgium, where we maintain significant manufacturing, sales or administrative operations; the
ongoing trade policy dispute between the United States and China, as well as adverse changes in trade policy, tariff regulation or other trade restrictions; fluctuations in foreign currency exchange rates;
the results of our research and development efforts; adverse competitive developments; business development transactions and related integration considerations, including failure to realize, or delays in
the realization of anticipated benefits of such transactions; the outcome of ongoing and future litigation, including our asbestos-related product liability litigation; inability to obtain raw materials,
including commodities, from single or limited source suppliers in a timely and cost effective manner; uncertainties with regard to the timing, expense and cash outlays associated with the termination and
settlement of the Rogers Corporation Defined Benefit Pension Plan; and changes in laws and regulations applicable to our business. For additional information about the risks, uncertainties and other
factors that may affect our business, please see our most recent annual report on Form 10-K and any subsequent reports filed with the Securities and Exchange Commission, including quarterly reports on
Form 10-Q. Rogers Corporation assumes no responsibility to update any forward-looking statements contained herein except as required by law.
Non-GAAP Information
This presentation includes the following financial measures that are not presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”):
(1) Adjusted net income, which the Company defines as net income excluding amortization of acquisition-related intangible assets and discrete items, such as restructuring, severance, impairments
and other related costs, acquisition and related integration costs, change in foreign jurisdiction tax regulation on equity awards attributable to a prior period, asbestos litigation-related charges,
transition services related to the asset acquisition, and gains or losses on asset or business dispositions (collectively, “Discrete Items”)
(2) Adjusted earnings per diluted share, which the Company defines as earnings per diluted share excluding acquisition-related amortization of intangible assets and Discrete items;
(3) Adjusted operating expenses, which the Company defines as operating expenses excluding acquisition-related amortization of intangible assets and Discrete Items;
(4) Adjusted operating income, which the Company defines as operating income excluding acquisition-related amortization of intangible assets and Discrete Items;
(5) Adjusted operating margin, which the Company defines as operating margin excluding acquisition-related amortization of intangible assets and Discrete Items;
(6) Adjusted EBITDA, which the company defines as net income excluding interest expense, income tax expense, depreciation and amortization, stock-based compensation and Discrete Items; and
(7) Adjusted EBITDA margin, which the Company defines as net income margin excluding interest expense, income tax expense, depreciation and amortization, and Discrete Items.
Management believes each of these measures is useful to investors because they allow for comparison to the Company’s performance in prior periods without the effect of items that, by their nature,
tend to obscure the Company’s core operating results due to the potential variability across periods based on the timing, frequency and magnitude of such items. As a result, management believes that
adjusted net income, adjusted earnings per diluted share, adjusted operating expenses, adjusted EBITDA, adjusted operating income, adjusted operating margin and adjusted EBITDA margin enhance the
ability of investors to analyze trends in the Company’s business and evaluate the Company’s performance relative to peer companies. However, non-GAAP financial measures have limitations as analytical
tools and should not be considered in isolation from, or solely as alternatives to, financial measures prepared in accordance with GAAP. In addition, these non-GAAP financial measures may differ from
similarly named measures used by other companies. Reconciliations of the differences between these non-GAAP financial measures and their most directly comparable financial measures calculated in
accordance with GAAP are set forth at the end of this document.
2
Introductions
Bruce Hoechner Mike Ludwig Bob Daigle
President & Senior Vice President & Senior Vice President &
Chief Executive Officer Chief Financial Officer Chief Technology Officer
3
Q2-2019 Summary
• Record quarterly net sales of $243M
Results • Gross margin of 35.3%
• Quarterly adjusted EPS* of $1.64 per diluted share
• Advanced Connectivity: Strong 5G and solid 4G wireless infrastructure demand
Highlights • Advanced Mobility: Continued strength in ADAS and growth in applications for EV/HEV batteries
• Strong long-term outlook for 5G, ADAS and EV/HEV markets
• Weakness in general industrial & conventional auto markets. Near-term uncertainty from trade disputes.
Challenges • Higher tariff costs impacting gross margins
• PES operational improvements ongoing
Long-term Advanced Connectivity & Advanced Mobility outlook remains strong
*See reconciliations to adjusted metrics in the appendix: earnings per diluted share to adjusted earnings per diluted share. 4
Growth Drivers
Advanced Connectivity Advanced Mobility
Today’s Markets
4G & 5G wireless Portable ADAS EV/HEV Power Modules Vehicle
infrastructure Electronics EV Batteries Electrification
New Opportunities
Internet of Low Earth Orbit Semi & Fully Vehicle-to-Vehicle
Things (LEO) Broadband Autonomous Vehicles Communications
5
Advanced Connectivity Solutions (ACS)
Q2 2019 Update Strategy
• Record net sales of $92.5M, up • Leverage innovation to capitalize
15% over Q1 2019 on market opportunities in key
areas:
• Strong 5G and solid 4G wireless • Wireless infrastructure
infrastructure demand
• Automotive safety sensors
• Continued strength in ADAS
• Invest in capacity and capabilities
to capitalize on projected market
growth
Expected long-term 5G and ADAS growth opportunities remain strong
6
Elastomeric Material Solutions (EMS)
Q2 2019 Update Strategy
• Net sales of $93.9M, up 1% over • Continue focus on applications in
Q1 2019 key markets of EV/HEV, portable
electronics and general industrial
• Strength in portable electronics,
EV/HEV batteries and mass transit • Optimize acquisitions to expand
profitable growth
• Weaker general industrial demand • Increase international revenues
• Making progress optimizing most
recent acquisitions
Focused on growth opportunities in Advanced Connectivity and Advanced Mobility
7
Power Electronics Solutions (PES)
Q2 2019 Update Strategy
• Net sales of $51.7M, down 14% • Leverage our proven technology to
over Q1 2019 capitalize on strong market growth
opportunities in Advanced Mobility
• Weakness in industrial power and applications
vehicle electrification demand
• Invest in capacity to support
• Efforts underway to address accelerating demand for
operating performance and add EV/HEV applications
capacity for new EV/HEV products • Execute on business
improvement initiatives to
increase profitability
Substantial demand for Advanced Mobility applications
Focused on improving operating performance
8
Rogers Vision for 2020
Strategic Elements Financial Objectives
Organic $1.2B Synergistic
Market-Driven Innovation growth: Revenues M&A growth:
Organization Leadership 7-10% 5-8%
15%
Total growth
Synergistic Operational
M&A Excellence
20% Margin:
Adjusted Operating
Adjusted operating margin*
20%
Capitalize on strong tailwinds in Advanced Connectivity and Advanced Mobility
applications to drive profitable growth
*The Company is unable to provide a reconciliation of this measure to operating margin, the most directly comparable GAAP measure, without unreasonable efforts because the nature and
amount of the potential adjustments in 2020 are not presently identifiable or calculable. 9
Financial overview Mike Ludwig, Sr. Vice President and Chief Financial Officer
Q2 2019 Financial highlights
($ in millions, except EPS) Q2-2019 Q1-2019 Q2-2018
Net sales $242.9 $239.8 $214.7
Gross margin $85.8 $85.4 $76.7
Gross margin % 35.3% 35.6% 35.7%
Operating income $33.2 $32.8 $25.2
Operating margin % 13.7% 13.7% 11.7%
Adjusted operating income* $41.7 $41.0 $31.7
Adjusted operating margin %* 17.2% 17.1% 14.8%
Net income $24.3 $28.4 $17.3
Net income % of net sales 10.0% 11.8% 8.1%
Adjusted EBITDA* $53.1 $53.1 $43.8
Adjusted EBITDA margin %* 21.9% 22.2% 20.4%
EPS $1.30 $1.52 $0.93
Adjusted EPS* $1.64 $1.85 $1.19
Achieved record quarterly net sales; adjusted earnings per share* exceeded guidance
*See reconciliations to adjusted metrics in the appendix: adjusted operating income to operating income, adjusted operating margin to operating margin, adjusted EBITDA to net income and adjusted earnings
per diluted share to earnings per diluted share. Adjusted EBITDA for the second quarter of 2018 has been recast to reflect the add-back of stock-based compensation expense. 11Revenue bridge vs prior quarter
($ in millions)
Q2-2019 Update +1.5% (0.2%) +1.3%
$0.5
$3.6
• Revenues of $243 million or 1.3%
increase sequentially
• Volume & other benefit driven by 5G $242.9
$239.8
growth in ACS business; EMS revenue
increases slightly; PES demand declines
sequentially
• Weaker Euro contributes to unfavorable
currency impact
Q1-2019 Volume Currency Q2-2019
Revenue & Other* Revenue
Record quarterly revenues driven by strong ACS volume performance
*Volume & Other of $3.6 million represents change in volume, price and mix excluding the impact of FX. 12Gross margin bridge vs prior quarter
($ in millions)
Q2-2019 Update +1.2% (1.8%)
+1.1% 0.0% +0.5%
$1.0 $1.5 $0.0
• Favorable ACS/EMS volume & other $0.9
conversion offset by lower PES margins
$85.4 $85.8
• Performance & other improvements
driven by ACS/EMS productivity 35.6%
efficiencies; offset by PES operational 35.3%
challenges
• 60 bps impact from higher tariffs
Q1-2019 Volume Performance Tariffs Impact Strategic Q2-2019
Gross Margin & Other & Other Investments Gross Margin
Volume & performance gains offset by PES operational challenges & higher tariffs
13Adjusted net income* bridge vs prior quarter
($ in millions)
Q2-2019 Update
+2.0%
(5.8%)
(7.5%)
• Adjusted Op Income* positively $0.7 (11.3%)
$2.0
impacted by higher revenue & lower $2.6
operating expenses
• Other income/expense unfavorably $34.6 $30.7
impacted by currencies and
commodities losses; partially offset by 14.4% 12.6%
higher JV equity income
• GAAP tax rate 22.9% vs. 14.2% in Q1
Q1-2019 Adj Op Other Taxes Q2-2019
Adj Net Income* Income* Income/Expense Adj Net Income*
Currencies, commodities and taxes results in lower adjusted net income*
*Reconciliation of adjusted net income to net income and adjusted operating income to operating income is included in the appendix.
14Cash utilization
($ in millions) Net cash provided by operating activities $67.5M
Net cash used in investing activities ($21.4M)
Net cash used by financing activities ($39.7M)
Effect of FX ($1.0M)
$33.0 Net increase (decrease) in cash $5.4M
$106.2
$24.0
$13.9
$9.2 $4.4
$16.4
$167.7 $173.1
12/31/2018 Cash Adj. EBITDA* Debt^ Capex Change in adj. Cash taxes paid Cash interest, Other 6/30/2019 Cash
trade capital** net
Cash utilization improves due to strong adjusted EBITDA* performance
*See reconciliations of adjusted EBITDA to net income in the appendix. **Change in Adjusted Trade Capital represents change in assets and liabilities, per the statement of cash flows. ^Repayment of debt
principal and finance lease obligations is $33.2 million per statement of cash flows. Finance lease obligations of approximately $0.2 million included in “Other” category. 15Q3-2019 guidance
($ in millions, except EPS)
Net sales $225M - $235M
Gross Margin 35.0% - 36.0%
EPS $1.05 - $1.20
Adjusted EPS* $1.30 - $1.45
*See reconciliation of adjusted earnings per diluted share to earnings per diluted share in the appendix.
16Appendix
Q2-2019: Adjusted operating income and operating margin reconciliation
($ in millions) Q2-18($) Q2-18(%) Q1-19($) Q1-19(%) Q2-19($) Q2-19(%)
Operating income and operating margin $25.2 11.7% $32.8 13.7% $33.2 13.7%
Restructuring, severance, impairment and other related costs $2.2 1.0% $1.9 0.8% $3.7 1.5%
Acquisition and related integration costs $0.9 0.4% $0.5 0.2% $0.3 0.1%
Change in foreign jurisdiction tax regulation on equity awards
attributable to a prior period - - $0.5 0.2% - -
Asbestos-related charges - - - - $0.1 0.0%
Transition services, net - - $0.6 0.3% $0.0 0.0%
Loss (gain) on sale of long-lived assets ($0.4) (0.2%) $0.3 0.1% - -
Total discrete items $2.7 1.2% $3.8 1.6% $4.1 1.7%
Operating income and operating margin, adjusted for discrete items $27.9 13.0% $36.6 15.3% $37.3 15.4%
Acquisition intangible amortization $3.8 1.8% $4.4 1.8% $4.4 1.8%
Adjusted operating income and operating margin $31.7 14.8% $41.0 17.1% $41.7 17.2%
Note: percentages and dollars may not add due to rounding. 18Q2-2019: Adjusted EBITDA and adjusted EBITDA margin reconciliation ($ in millions) Q2-18($) Q2-18(%) Q1-19($) Q1-19(%) Q2-19($) Q2-19(%) Net Income $17.3 8.1% $28.4 11.8% $24.3 10.0% Interest expense, net $1.3 0.6% $1.9 0.8% $2.0 0.8% Income tax expense $8.4 3.9% $4.7 2.0% $7.2 3.0% Depreciation $7.1 3.3% $8.5 3.6% $7.7 3.2% Amortization $3.8 1.8% $4.5 1.9% $4.4 1.8% Stock-based compensation expense $3.1 1.5% $2.5 1.0% $3.7 1.5% Restructuring, severance, impairment and other related charges $2.2 1.0% $1.9 0.8% $3.7 1.5% Acquisition and related integration costs $0.9 0.4% $0.5 0.2% $0.3 0.1% Change in foreign jurisdiction tax regulation on equity awards attributable to a prior period - - $0.5 0.2% - - Asbestos-related charges - - - $0.1 0.0% Transition services lease income - - ($0.6) (0.3%) ($0.3) (0.1%) Loss (gain) on sale of long-lived assets ($0.4) (0.2%) $0.3 0.1% - - Adjusted EBITDA* $43.8 20.4% $53.1 22.2% $53.1 21.9% Note: percentages and dollars may not add due to rounding *Adjusted EBITDA for the second quarter of 2018 has been recast to reflect the add-back of stock-based compensation expense. 19
Q2-2019: Adjusted EPS reconciliation
Q2-18 ($) Q1-19 ($) Q2-19 ($)
GAAP earnings per diluted share $0.93 $1.52 $1.30
Restructuring, severance, impairment and other related costs $0.09 $0.07 $0.15
Acquisition and related integration costs $0.04 $0.02 $0.01
Change in foreign jurisdiction tax regulation on equity awards
- $0.02 -
attributable to a prior period
Asbestos-related charges - - -
Transition services, net $0.03 -
Loss (gain) on sale of long-lived assets ($0.02) $0.01 -
Total discrete items $0.11 $0.15 $0.16
Earnings per diluted share adjusted for discrete items $1.04 $1.67 $1.46
Acquisition intangible amortization $0.15 $0.18 $0.18
Adjusted earnings per diluted share $1.19 $1.85 $1.64
Note: percentages and dollars may not add due to rounding. 20Q2-2019: Adjusted net income reconciliation ($ in millions) Q1-19 ($) Q1-19(%) Q2-19 ($) Q2-19(%) Net Income $28.4 11.8% $24.3 10.0% Restructuring, severance, impairment and other related costs $1.9 0.8% $3.7 1.5% Acquisition and related integration costs $0.5 0.2% $0.3 0.1% Change in foreign jurisdiction tax regulation on equity awards attributable to a prior period $0.5 0.2% - - Asbestos-related charges - - $0.1 0.0% Transition services, net $0.6 0.3% - - Loss (gain) on sale of long-lived assets $0.3 0.1% - - Acquisition intangible amortization $4.4 1.8% $4.4 1.8% Income tax effect of non-GAAP adjustments and intangible amortization ($2.0) (0.8%) ($2.1) (0.9%) Adjusted net income $34.6 14.4% $30.7 12.6% Note: percentages and dollars may not add due to rounding. 21
Q2-2019: Adjusted operating expenses reconciliation*
($ in millions) Q1-19($) Q1-19(%) Q2-19($) Q2-19(%)
Operating expenses $52.6 21.9% $52.6 21.7%
Restructuring, severance, impairment and other related costs ($1.9) (0.8%) ($3.7) (1.5%)
Acquisition and related integration costs ($0.5) (0.2%) ($0.3) (0.1%)
Change in foreign jurisdiction tax regulation on equity awards
attributable to a prior period ($0.5) (0.2%) - -
Asbestos-related charges - - ($0.1) (0.0%)
(Loss) gain on sale of long-lived assets ($0.3) (0.1%) - -
Transition services, net ($0.6) (0.3%) $0.0 0.0%
Total discrete items ($3.8) (1.6%) ($4.1) (1.7%)
Operating expenses, adjusted for discrete items $48.8 20.3% $48.5 20.0%
Acquisition intangible amortization ($4.4) (1.8%) ($4.4) (1.8%)
Adjusted operating expenses $44.4 18.5% $44.1 18.2%
Note: percentages and dollars may not add due to rounding
*Operating expenses include (i) selling, general and administrative expenses, (ii) research and development expenses, (iii) restructuring and impairment charges and (iv) other operating (income) 22
expense, net per statement of operations.Q3-2019 guidance reconciliation
Q3-19 ($)
GAAP earnings per diluted share $1.05 - $1.20
Discrete items $0.07
Acquisition intangible amortization $0.18
Adjusted earnings per diluted share $1.30 - $1.45
Note: percentages and dollars may not add due to rounding. 23You can also read
